Fraudulent transactions executed on the Internet is a growing problem that will limit the adoption of automatic payment systems using a cell phone or other mobile device. The number of U.S. identity fraud victims rose 12 percent to 11.1 million adults last year, the highest level since the survey began in 2003, according to Javelin Strategy & Research, “Identity Fraud Survey Report,” February 2010). However, the total annual fraud amount jumped just 7 percent to $48 billion. The report said this is because “consumers and businesses are detecting and resolving fraud more quickly” according to Javelin Strategy & Research, February 2009 study.
This invention is directed to setting up a trusted third party that the mobile device using retail customer and a merchant can both rely on to protect the credit card or other private payment information of the mobile device using customer and to ensure that the merchant is going to be paid for the transaction. It requires a relatively low investment in hardware and little modification of existing consumer habits. People are most likely to easily adopt new products or services (such as new ways to pay) if they don't have to significantly modify their behavior to take advantage of them. This invention is considerably simpler than the hardware requirements for the near field communications-based ISIS tap-to-pay system being developed by a coalition of major U.S. wireless carriers.